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Mikael · 01-15-2009, 12:33 PM

Thu Jan 15, 2009 2:34pm GMT

LONDON (Reuters) - Britain must reconsider adopting the euro because of sterling's vulnerability during the financial crisis, a group of economists said on Thursday.

"Countries that have a huge banking sector and a small currency -- a currency that is not a global reserve currency -- are vulnerable and at risk of being 'Iceland-ised'" former Bank of England policymaker Willem Buiter said at the launch of a campaign to get the euro back on Britain's political agenda.

"There's a real risk of a triple crisis hitting this country -- a run on sterling, a sovereign default crisis and the banking crisis. It's a small risk but it is an unnecessary risk that would be substantially diminished if this country had a real currency."
Full article: Britain must reopen euro debate | UK | Reuters

Mikael · 01-26-2009, 10:48 AM

I think Mr. Buiter is right. There probably isn't a country in Europe that hasn't been affected by the current financial crisis but it's noticeable how dramatic the change to worse has been in the ones outside the Eurozone. During the "good times" their GDP growth was above the Eurozone average but on the other hand the downturn has alike been more violent for them.

Adopting the euro will mean giving up on independent monetary policy but in return it gives economical stability. The growth of the economy might not be as high during upturns but nor will the downturns be as fierce. In Finland for example we haven't had to worry about devalvation which was done several times in the last couple of decades before the euro-era.

Like Mr. Buiter states, the pound is not a global reserve currency and therefore its significance in global economy is not on the same level as it used to be. It's far from certain that foreign investors will have trust in it infinitely and unconditionally.

The majority is already in favour of the euro in Denmark and there will be a referendum by 2011. I'm quite sure the Danes will adopt euro before Sweden and the U.K.

The general opinion in Sweden has also started to change towards more euro-friendly. The Reinfeldt administration has ruled out holding a referendum during the current term so the possible adoption will probably happen some time after 2010. My guess would be 2013 at earliest.

I also agree with Mr. Buiter about the possible schedule for the euro adoption in the U.K. Currently there is not enough support amongst the British people. Right now the approval rating for Gordon Brown and his administration is very low as is Labour's support in general. Unless there is a sudden change of course, I think the Tories will win the next election. As they are quite anti-EU there is minimal chance they will hold a referendum. For that reason, if the U.K decides in favor of the euro, it will most likely be during the term of the next Labour government (after 2013).

01-15-2009, 12:33 PM	#1
Mikael Fanatic Moderator Emeritus Join Date: Nov 2005 Posts: 1,836 Thanks: 828 Thanked 415 Times in 233 Posts	"Britain must reopen euro debate" Thu Jan 15, 2009 2:34pm GMT LONDON (Reuters) - Britain must reconsider adopting the euro because of sterling's vulnerability during the financial crisis, a group of economists said on Thursday. "Countries that have a huge banking sector and a small currency -- a currency that is not a global reserve currency -- are vulnerable and at risk of being 'Iceland-ised'" former Bank of England policymaker Willem Buiter said at the launch of a campaign to get the euro back on Britain's political agenda. "There's a real risk of a triple crisis hitting this country -- a run on sterling, a sovereign default crisis and the banking crisis. It's a small risk but it is an unnecessary risk that would be substantially diminished if this country had a real currency." Full article: Britain must reopen euro debate \| UK \| Reuters

01-26-2009, 10:48 AM	#2
Mikael Fanatic Moderator Emeritus Join Date: Nov 2005 Posts: 1,836 Thanks: 828 Thanked 415 Times in 233 Posts	Re: "Britain must reopen euro debate" I think Mr. Buiter is right. There probably isn't a country in Europe that hasn't been affected by the current financial crisis but it's noticeable how dramatic the change to worse has been in the ones outside the Eurozone. During the "good times" their GDP growth was above the Eurozone average but on the other hand the downturn has alike been more violent for them. Adopting the euro will mean giving up on independent monetary policy but in return it gives economical stability. The growth of the economy might not be as high during upturns but nor will the downturns be as fierce. In Finland for example we haven't had to worry about devalvation which was done several times in the last couple of decades before the euro-era. Like Mr. Buiter states, the pound is not a global reserve currency and therefore its significance in global economy is not on the same level as it used to be. It's far from certain that foreign investors will have trust in it infinitely and unconditionally. The majority is already in favour of the euro in Denmark and there will be a referendum by 2011. I'm quite sure the Danes will adopt euro before Sweden and the U.K. The general opinion in Sweden has also started to change towards more euro-friendly. The Reinfeldt administration has ruled out holding a referendum during the current term so the possible adoption will probably happen some time after 2010. My guess would be 2013 at earliest. I also agree with Mr. Buiter about the possible schedule for the euro adoption in the U.K. Currently there is not enough support amongst the British people. Right now the approval rating for Gordon Brown and his administration is very low as is Labour's support in general. Unless there is a sudden change of course, I think the Tories will win the next election. As they are quite anti-EU there is minimal chance they will hold a referendum. For that reason, if the U.K decides in favor of the euro, it will most likely be during the term of the next Labour government (after 2013).

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